Your credit score goes a long way toward determining what type of mortgage that you can expect to get. In general, those with good credit scores are going to get fixed rate loans with interest rates at the lower end of the rate spectrum. People with bad credit may not qualify for a loan at all or may need a significant down payment. Let’s take a look at how your credit score can impact your ability to buy a home.
Lenders Look For A Credit Score Of At Least 740
To get the best rates, you need to have a credit score of at least 740. While you can get approval for a loan with a credit score of as low as 600, you will pay much more in interest, mortgage insurance and other fees. The additional fees and interest paid each month will eat into the amount of your monthly payment actually going toward the cost of the home.
A Variable Rate May Not Keep You Home For Long
If you have a variable rate loan, you have up to five years before your rate will begin to change based on how the housing market is doing. When the housing market is bad, your rates may stay low even with a variable rate loan. However, if the market does well, you will pay extra for your loan. This means that those with bad credit who qualify for a variable rate loan may need to stay under budget if they plan on staying in their home for several years. If this sounds like a situation that you are in, it may be a good idea to visit a credit repair service as soon as possible.
You May Need A FHA Loan To Afford Your Next House
FHA loans allow those with bad credit scores to obtain financing with relaxed restrictions. The only downside is that not all homes can be purchased with an FHA loan. This means that you will be restricted to a certain area of town from which you can buy a house. It could mean that you will have to live in a neighborhood that doesn’t appeal to you or is farther away from work than you would like it to be.
Your credit score can limit your home search in many ways. If you want to buy your dream house in the next couple of years, start saving and working on your credit score right now.
Article provided by Annabelle Smyth.